1 Overview of Maryland Pepco and Delmarva Power Spring 2007 Blueprint for the Future Filings Tom Graham, President Pepco Region Maryland Commission Hearing -- Annapolis July 26, 2007

2 Motivation for Pepco and Delmarva Blueprint Filings Higher Regional Energy Costs – Blueprint Plan facilitates Maryland customer control over electricity bills and places downward pressure on PJM market wholesale energy and capacity prices. MADRI/Commission/PJM Brattle Study recently calculated that a 3% reduction in peak electricity demand would reduce regional electricity prices annually by $57 million to $182 million. Demand response capabilities mitigate generator market power. Constrained Regional Transmission Import Capability – Blueprint Plan reduces future peak electricity demand to lessen burden on transmission system. Growing Environmental Concerns over Power Plant Air Emissions – Blueprint Plan reduces future power plant air emissions and resulting greenhouse gases.

3 Motivation for Pepco and Delmarva Blueprint Filings (continued) Availability of New Electric Distribution System Technology –Blueprint Plan uses new tested technology to enhance distribution system operation, improving service quality, reducing electric distribution operational costs, supporting demand side management initiatives – including both dynamic pricing and new demand response technologies, supporting renewable generation technologies, and supporting future plug-in vehicles. Plan Benefits vs. Costs –Blueprint Benefits will be Significantly Greater than Costs for Maryland Pepco and Delmarva Customers –DSM Proposals are Cost-Effective and were Tested Using All Ratepayers Test (Pepco and Delmarva recommend Commission adoption of Societal Test) –AMI Utility Specific Business Case to be Shared w/Maryland Stakeholders in the Near-term –Significant Regional/National Benefits from Resulting Reductions in Greenhouse Gases

4 Key PHI Blueprint Initiatives Energy Efficiency/Conservation Programs –Reduce Annual Electricity Use Demand Response Programs –Reduce Summer Peak Electricity Demand Advanced Metering Infrastructure –Improve Distribution System Operation –Improve Customer Service –Provide Interval Consumption Data through Remote Readings –Support Demand Response through Dynamic Pricing and Direct Load Control Technology Capability –Support Small Renewable Generation/Plug-In Vehicles

5 PHI Blueprint Filings Delaware Delmarva Power Filing -- February 9, 2007 –Commission Established Working Group Process Maryland Delmarva Power Filing – March 21, 2007 –Commission Established Working Group Process Maryland Pepco Filing – March 21, 2007 –Commission Established Working Group Process

6 PHI Blueprint Filings (continued) District of Columbia Pepco Filing – April 4, 2007 –Commission Established Regulatory Case Each Blueprint Plan Includes: –AMI Universal Deployment for all PHI Electric/Gas Distribution Customers –Utility Provided Energy Efficiency Programs –Utility Provided Demand Response Programs –Each Plan Specific to Each Jurisdiction New Jersey Atlantic City Electric Filing – Planned for Summer 2007

7 Maryland Blueprint Plan(s) Requested Regulatory Commission Actions 1)Permission to Establish a Delmarva Power and a Separate Pepco Specific Demand Side Management (DSM) Collaborative –DSM Collaboratives would Discuss Utility Provided DSM Programs and Submit Final Agreed Upon Utility Provided DSM Programs for Commission Approval –Collaboratives to be Lead by Delmarva and Pepco 2)Permission to Establish a Delmarva Power and a Separate Pepco Specific AMI Advisory Group Utilities to Share AMI Technical Plans w/participants and permit exchange of ideas Utilities responsible for determining final technical specifications and selection/negotiations w/vendors

8 Maryland Blueprint Plan(s) Requested Regulatory Commission Actions (continued) 3)Establish a DSM Cost Recovery Mechanism – Proposed Distribution Bill Surcharge w/5 Year Recovery Period, Similar to Previous MD DSM Surcharge 4)Establish AMI Cost Recovery Mechanism – Proposed Distribution Rate Adjustment to Ensure Timely Recovery of AMI and Related Demand Response Capital Costs over a 15 Year Period, Similar to Mechanism Established by other States 5)Approve Bill Stabilization Adjustment Mechanisms Contained in Delmarva Power and Pepco Base Distribution Rate Cases – Removes Financial Disincentive for Distribution Utility Investments in DSM

9 Delmarva Power/Pepco Recommended Utility DSM Programs General Awareness Campaign – Customer DSM Education/Marketing Effort Residential Programs –Home Performance w/Energy Star: Home Audit Based Program –HVAC Efficiency: High Efficiency Central AC/HP and Training Program –Lighting/Window AC Program: Compact Fluorescent Lighting and High Efficiency Window Units Program –Smart Stat: Remotely Controllable Programmable T-stat Central AC/HP Program

10 Delmarva Power/Pepco Recommended Utility DSM Programs (continued) Non-Residential Programs –Building Commissioning and O&M: Consulting/Engineering Services to Improve Efficiency of Buildings –HVAC Efficiency: High Efficiency HVAC Equip. up to 30 Tons and Contractor Training –Prescriptive: Energy Efficiency Measure Incentives for Electric Motors and Lighting –Custom Incentive: Site Specific Efficiency Measures –Smart Stat: Remotely Controllable T-Stat Program –Internet Platform: Web-based Platform to Facilitate Participation in PJM Demand Response Market

11 Delmarva Power DSM Forecast Impact After Three Year Initial Implementation Residential –13.6 MW Peak Demand Reduction –20,600 MWh Annual Energy Reduction –41,200 Participants –181,100 DSM Measures Non-Residential –40.6 MW Peak Demand Reduction –60,900 MWh Annual Energy Reduction –5,210 Participants –446,000 DSM Measures

12 Delmarva Power Three Year DSM Budget Residential –$8.9 million Non-Residential –$6.1 million General Awareness –$2.9 million Total (including start-up) –$18.3 million

13 Pepco DSM Forecast Impact After Three Year Initial Implementation Residential –33.6 MW Peak Demand Reduction –55,900 MWh Annual Energy Reduction –110,500 Participants –493,800 DSM Measures Non-Residential –57.8 MW Peak Demand Reduction –124,300 MWh Annual Energy Reduction –9,200 Participants –1,079,944 DSM Measures

14 Pepco Three Year DSM Budget Residential –$21.8 million Non-Residential –$10.8 million General Awareness –$3.9 million Total (including start-up) –$37 million

15 Advanced Metering Infrastructure Universal Deployment of Advanced Meters for All Distribution Customers –Meters Capable of Providing Interval Data through Remote Readings –Providing Distribution System Monitoring –Communications with Direct Load Control Equipment/Smart Appliances/Data Display Devices

16 Delmarva Power Maryland AMI Deployment Overview Install Meter Data Management System Replace 204,278 Meters Build Out Required Communications Project Schedule –18 to 24 Months for Technical Specifications/Vendor Selection –5 Year Installation Period Estimated Capital Cost: $1 million for MDMS, $50 million for AMI

17 Pepco Maryland AMI Deployment Overview Install Meter Data Management System Replace 530,952 Meters Build Out Required Communications Project Schedule –18 to 24 Months for Technical Specifications/Vendor Selection –5 Year Installation Period Estimated Capital Cost: $2.7 million for MDMS, $125 million for AMI

18 AMI Benefits Remote Meter Reading –Eliminates Need for Meter Reader –Permits More Frequent Readings –Supports Enhanced Customer Service Capabilities –Improves Reading Accuracy –Discovers Malfunctioning Meters –Customer Specific Load Research Data

19 AMI Benefits (continued) Demand Response –Communicates w/Demand Response Enabling Technology –Supports Dynamic Pricing Options –Enhances Customer Control Over Monthly Bills through Detailed Consumption Data

20 AMI Benefits (continued) Distribution System Monitoring –Improves Distribution System Design, Reliability, and Performance Distribution System Asset Management –Outage Reporting –Increased Accuracy of Repair Crew Dispatch Remote Service Disconnect –Reduces Utility Service Visits Tamper Detection –Informs Utility of Possible Meter Tampering

21 AMI Benefits (continued) Supports New Rate Options –Pricing for Renewable Generators –Pricing for Plug-In Vehicles –Any Time Differentiated Pricing Summary of Benefits –Distribution Utility Cost Reductions –Distribution Customer Service Enhancements –Peak Demand Reductions –PHI to Share Estimated Monetary Value of Benefits with Maryland Stakeholders in the Near-term

22 Blueprint Path Forward Pepco and Delmarva Power are Prepared to Begin the Implementation of their Blueprint Plan Now The Plan Will: –Reduce Electricity Use/Reduce Peak Electricity Demand –Help Maryland Customers Manage Higher Energy Costs –Reduce Overall Regional Wholesale Electricity Market Prices –Lessen Burden on Increasingly Constrained Regional Transmission –Reduce Future Power Plant Air Emissions –Improve Distribution System Operations –Improve Utility Customer Service –Take Advantage of New Technologies Implementation Delay will Lengthen the Period Before these Benefits are Available to Maryland Consumers

23 Blueprint Backup Slides

24 DSM Program Selection Process Commercially Available DSM Measure Applicable to Maryland Market Screened for Cost-Effectiveness using All Ratepayers Test (ART) –Avoided Energy Prices Derived from MD SOS Prices –Avoided Capacity Prices Derived from Cost of New Generation Entry and Regional Transmission Constraints Approx. 370 DSM Measures Screened for Cost-Effectiveness –65% Projected to be Cost-Effective Under ART Additional Measures Would Pass if Societal Test Used and Value of Reduced Negative Externalities Estimated Pepco/Delmarva Power DSM Programs Intended to be a Starting Point for Utility Specific Collaboratives –Measures Expected to be Cost-Effective Packaged into Programs

25 Cost Recovery Bill Stabilization Adjustment –Distribution Rate Decoupling Mechanism Removes Utility Financial Disincentive to Offer/Support DSM –Only Applicable to Distribution Portion of Bill –Proposed in Delmarva Power/Pepco Current Distribution Base Rate Cases DSM Surcharge –Non-Bypassable Distribution Surcharge –Rate Class Differentiated –5 Year Recovery of DSM Costs –Interest on Unrecovered Costs at Utility Allowed Rate of Return –Similar to Maryland DSM Surcharge in Existence During the 1990s

26 Cost Recovery (continued) AMI Adjustment Mechanism –Timely Recovery of AMI Capital Costs Over 15 Year Period to Reflect Expected Equipment Life –Accelerated Cost Recovery of Existing Meters Over 3 to 5 Year Period –Recovery of Demand Response Smart Thermostat Capital Cost Over 15 Year Period –Interest on Unrecovered Capital Costs at Utility Allowed Rate of Return –Utility Monetized AMI Operational Savings to be Netted from AMI Adjustment Mechanism –AMI Adjustment Mechanism Set Annually Based on Previous 12 Month Actual Expenditures –Similar AMI Cost Recovery Mechanisms Approved by Other Jurisdictions

27 Cost Recovery (continued) Alternative Cost Recovery Method - Utility Base Distribution Rate Cases –Delays Timeliness of Cost Recovery, Potentially Increasing Utility Cost of Capital –Increased Regulatory Burden on All Maryland Market Stakeholders